OCC, FDIC Define 'Unsafe or Unsound Practice' in Final Rule
Federal bank regulators will now need to show a connection to material financial harm before taking supervisory or enforcement action based on an unsafe or unsound practice, a significant shift in the examination framework.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have adopted a joint final rule that establishes a binding definition for an “unsafe or unsound practice” for the first time. Effective November 2, 2026, the rule institutes a two-part test requiring that conduct be contrary to generally accepted standards of prudent operation and also create a material risk of financial harm to the institution or the Deposit Insurance Fund. The Federal Reserve did not join the rulemaking but has issued separate, similar guidance.
This new standard raises the bar for regulators to issue supervisory warnings or bring enforcement actions, particularly for issues related to a bank's Compliance Management System (CMS). Examiners must now connect procedural deficiencies to potential material financial harm, a significant departure from prior practice where policy gaps alone could trigger a Matter Requiring Attention (MRA). The change provides banks with a clearer, more defensible standard for supervisory matters. Counsel should note the OCC has also proposed a parallel rule to distinguish between “substantive” and “technical” violations of law, which could further limit the basis for MRAs. Institutions should reassess open MRAs against the new standard and monitor for forthcoming revisions to agency examination manuals.